Conference center expected to lose money for first 10 years

Conference center expected to lose money for first 10 years

September 6th, 2013 in News

Jefferson City has "key characteristics" to support a conference center, but city officials should consider a smaller accompanying hotel than it was seeking and expect the conference center to operate in the red at least for a decade.

Those are two findings of an updated conference center market study commissioned by the city for $17,000 earlier this year. The study was released at a special council meeting Thursday evening.

Charles Johnson of Johnson Consulting went over his findings with the council at the meeting. Afterward, the council held a meeting that was closed to the public.

The study said it expects a local conference center to show net losses of $500,000 in 2015, the first year of operation. That annual deficit could shrink to $55,369 in 2025. The cumulative loss over 11 years from 2015 to 2025 would be nearly $1.8 million.

Those figures, the study notes, are "worst-case projections."

"The proposed conference center is expected to operate at a net deficit throughout the projection period," Johnson's study said. "However, the projected deficits are consistent with those observed at conference centers of similar size and orientation."

The study also said that the Jefferson City Council is "adamant" that it would not pay annual subsidies to prop up conference center revenues after its anticipated $9 million outlay to build the center.

"It is reasonable for the hotel developer to incur the risk associated with this project, so as to guarantee zero liability to the city after the city pays debt service," the report said.

In response to a question from Mayor Eric Struemph, Johnson said the city could consider giving a marketing stipend or capital improvements stipend rather than a subsidy.

Neither prospective conference center developer has ruled out the need for subsidies from the city. They wouldn't say after Thursday's two-hour meeting, either.

"After we've had a chance to analyze (the report), we're looking forward to getting together with city leaders and working with them to try to make this thing work, regardless of what the numbers say," said Rob Kingsbury of Jefferson City-based Farmer Holding Company.

Trey Propes, representing Hannibal-based Ehrhardt Hospitality Group, said his group won't know until they see the actual report. He said because conferences are booked sometimes a year or more in advance, losses for a new conference center could be considerably more at first, until it starts booking and hosting the conventions.

In the original request for proposals, the city called for a facility with a minimum of 30,000 square feet of exhibit space and an accompanying hotel with 200 rooms. Johnson also suggested 30,000 square feet of exhibit space, but said it should be expandable by another 40,000 square feet.

He said to provide 30,000 square feet in exhibition space, you'd need a conference center with twice that in total square footage. The cost to build would be $250-$350 per square foot, he said.

Farmer Holding proposed a center beside its Capital Mall with a minimum of 30,000 square feet of exhibit space and a 126-room hotel.

Ehrhardt proposed a downtown site on West McCarty Street with 22,500 square feet. Their drawings showed a 200-room hotel, but they said they felt more comfortable with a 150-room hotel.

Johnson said a Courtyard by Marriott would be a good choice for the hotel.

Second Ward Councilman Rick Mihalevich asked which site would be more competitive economically in the long term.

"A long-term urban solution is better, but you'd have a very solid" location at the mall, Johnson replied.

The study included the results of a web-based survey of potential users of the facility, all members of the Midwest Society of Association Executives. Some of the findings were:

• 240 events for a conference center are projected for 2016, increasing to 264 in 2025.

• A conference center would bring 200-plus jobs to the community.

• There is a lack of entertainment needed to make Jefferson City an attractive destination for certain events.

• The city fared best in the survey on safety and security and affordability.

• About 42 percent of respondents require on average 10,000 to 20,000 square feet of ballroom space for events, while 28 percent require on average a room block of 200 or more rooms for their events.

• And 66 percent favored a downtown location, as proposed by the Ehrhardt Hospitality Group, while 18 percent preferred a location adjacent to Capital Mall, which was proposed by Farmer Holding Company.

In a workshop Johnson Consulting had with the CVB and meeting planners, participants were divided in their opinions.